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This paper – written with Matteo Deleidi – is focused on modern monetary theory’s (MMT) treatment of inflation from an open-economy perspective. It analyses how the inflation process is explained within the MMT framework and provides empirical evidence in support of this vision. However, it also makes use of a stock–flow consistent open-economy model to underline some limits of the theory when it is applied in the context of a non-US (relatively) open economy with a flexible exchange-rate regime. The model challenges the contention made by MMT-ers that measures such as the job guarantee programme can achieve full employment without facing an inflation–unemployment trade-off.

Link to the European Journal of Economics and Economic Policy: Intervention